Raising Entrepreneurial Capital

DISCUSSION QUESTIONS

1. Go through the term sheet in Appendix 6.1. What is the purpose of each

clause? What risk is the venture capitalist protecting against?

2. What characteristics make a firm a strong candidate for venture capital?

3. What should an entrepreneur look for in a venture capitalist? Why might

the highest bid not be the best option?

CASE 6.1 NEW TECH (J): GETTING INVESTORS’

ATTENTION

It is now time to prepare New Tech’s invest ment proposal. Elizabeth Pratt,

the company’s in-house accountant, is pleased by the prospect of preparing

the first draft. She knows that it will be a key tool in interesting investors in

New Tech.

Elizabeth is well prepared. She has worked with others on the manage-

ment team to document their financial assumptions, determine their finan-

cial requirements, and build a deal that will benefit investors and New Tech.

She has prepared New Tech’s 5-year financial projections (see Appendix in

chapter 5) for inclusion in the proposal.

She has met with New Tech’s lawyer, Tony Lee of Smith & Smith, to

discuss which security act provisions the company may be subject to, the

prospectus exemptions the company may qualify under, as well as other

considerations regarding the presentation/format of the document.

KEY TASKS

To put together an effective investment propo sal, Elizabeth will have to

fulfill these tasks:

. Think about what investors want to know

. Present key informat ion, concisely and compellingly, on

. New Tech, its market and competitors

. The terms of the deal New Tech is offering

. Key financial data and forecasts

. The management team

. Prepare an executive summary that will capture the invest ors’ interest

She has organized the executive summary into three parts:

. The Investment Opportunity

. New Tech’s Strat egy

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